Sparky, Inc. presented the following select balance sheet
accounts for Plant, Property & Equipment as well as Intangibles
as of December 31, 2016:

Plant, Property & Equipment:

Equipment (net of Accumulated
Depreciation)

$ 305,000

Intangibles:

Patent – FJ190X
(net of Accumulated Amortization)

$ 162,000

The following information was reported in Sparky’s 10K filing as
of December 31, 2016:

The equipment was purchased for $450,000 on October 1, 2015. It
has an estimated salvage value of $30,000 and an expected service
life of six years. Sparky uses the Sum-of-Years-Digits method for
this class of asset.

The patent was acquired on January 1, 2016 and at that time had
an estimated remaining useful life of 10 years.

During 2017, the following transactions and events
may have affected Sparky’s long-lived assets:

July 1

Paid $68,000 in legal fees that resulted in the successful
defense of the patent. This event did not change the estimated
remaining useful life.

Aug 1

Sparky paid $3,800,000 to acquire all of the common stock of
Wild Cat, Inc., which became a division of Sparky. Wild Cat
reported the following balance sheet at the time of
acquisition:

Current
Assets $1,200,000 Current
Liabilities $
900,000

Plant & Equip (net)
3,800,000
Long-Term
Debt
1,100,000

Stockholder’s
Equity 3,000,000

*On the date of the business combination, it was determined
that the fair value of Wild Cat’s Plant & Equipment was
$4,150,000. For all other balance sheet accounts, Wild Cat’s book
value was equal to their fair value.

Dec 31

At year-end, after recording the appropriate depreciation on the
equipment, Sparky determined it was necessary to perform an
impairment test due to rapid changes in demand for the one and only
product this piece of equipment produces. Sparky estimated the
future net cash flows of the equipment to be $55,000 per year for
the next three years. Sparky intends to continue using the
equipment and evaluates PP&E using a discount rate of 15%. (PV
of $1, 15%, 3n is .657 and PVOA, 15%, 3n is 2.625)

Using the above information, answer each of the
following questions:

Determine Amortization Expense for all of fiscal year 2017 for
Patent FJ190X: ________

2 points

QUESTION 2

Determine the amount of Goodwill (if any) Sparky would report on
their balance sheet dated December 31, 2017.

2 points

QUESTION 3

Determine the amount of the Impairment Loss (if any) Sparky
would report for the Equipment as of December 31, 2017:

2 points

QUESTION 4

Assume that early in 2018, Sparky determined that the equipment
will only remain productive through December 31, 2019 and changed
to the straight-line method for this asset. The salvage value was
determined to be $10,075. Determine Depreciation Expense (if any)
Sparky would record for this equipment as of December 31, 2018:

2 points

QUESTION 5

Based on #4 above, if the fair value for the equipment at
December 31, 2018 is $80,000, would you need to prepare a journal
entry to record the increase in fair value under U.S. GAAP?

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